A Dot in the Road

Those in the economics profession are often charged with making forecasts.  For some periods, there is a lot of agreement regarding the path of the economy.  But then the road gets bumpier, and opinions begin to differentiate more and more.  This recent Economic Letter from the San Francisco Federal Reserve suggests central bank economists are approaching a fork in the road.  This can be seen in the so-called “dot plot” which is included in the Fed’s Summary of Economic Projections.

The dot plot is a graph with anonymous opinions about appropriate interest rate policies.  Participants offer their thoughts about the current year, the year ahead, and two years ahead.  While it doesn’t provide any direct looks at their thoughts about the economy or inflation, many observers use the plots to extrapolate possible insights. 

Not long after the Great Financial Crisis of 2007-2009, economists seemed to be on the same page of the Thomas Guide.  There was likely relatively little disagreement regarding the economy’s trajectory, so it showed up on the dot plot as having little variance in the anonymous points on the graph.  It was as if the road ahead was well marked.  The pandemic changed things for the American economy but ushered in even more harmony for projection from our central bankers.   But now the path to choose is becoming less obvious, suggesting disagreements about the future of our economy are rising among Fed officials.

Chair of the Federal Open Market Committee, Jerome Powell, is scheduled to give remarks later this morning from the annual Jackson Hole Economic Symposium, hosted by the Federal Reserve Bank of Kansas City.  Despite low expectations that the Fed will reveal any material changes about current policies, this is one if not the most anticipated economic events this week.  Like a traveler motoring down the road, the leaders of the Federal Reserve continuously assess and adapt to the path before them.  If they come to a fork in the road, don’t worry where their individual dots sit, they’ll do what Yogi Berra would do and take it.